The alternative to Trumpism lies in the forgotten postwar liberal vision.

Heading into 2020, liberals are at a crossroads on trade. Most abhor Donald Trump’s “America First” rhetoric. And even as they increasingly recognize that something is amiss with the global system, many are frightened by his bull-in-a-china-shop approach. But just what is the big competing vision his opponents have to offer?

For decades, the political and intellectual leaders of the Democratic
Party marched alongside the GOP under the banner of “free trade.”
Organized labor often objected to the resulting loss of manufacturing
jobs as corporations moved factories offshore or simply surrendered
markets to foreign rivals. So did some Democratic politicians. (After
all, Dick Gephardt’s slogan in his failed bid to win the 1988 Democratic
presidential nomination was “Let’s Make America First Again.”) But
union grievances tended to be dismissed as the plaints of workers
unwilling, or unable, to compete in a global economy. All thinking
people, at least in the party’s expanding wing of college-educated
professionals, knew that free trade promoted international peace and
prosperity, and anything less was special-interest politics.

This idea became particularly pervasive in the early 1990s, when
President Bill Clinton embraced the North American Free Trade Agreement
(NAFTA). The trade pact was originally proposed by Ronald Reagan and
largely negotiated by George H. W. Bush, but Clinton adopted it with few
changes. Democrats in the 1990s similarly supported the creation of the
World Trade Organization (WTO), agreeing to abide by the decisions of a
quasi-judicial body in Geneva on trade disputes, and welcomed China as a
member. More recently, Barack Obama spent his last two years in office
pursuing the Trans-Pacific Partnership (TPP), which he described as a
means to box China out in favor of other Pacific Rim countries.

But by 2016, the consensus had cracked. Bernie Sanders won more than
40 percent of the Democratic Party’s primary votes in part by renouncing
the party’s position on trade. Feeling the pressure from Sanders,
Hillary Clinton split with Obama by turning on the TPP, which she had
praised as secretary of state. Defenders of the status quo can still
point to the fact that the expansion of global trade has reduced extreme
poverty in parts of the developing world. But it has become
increasingly difficult to deny that a flood of imports, particularly
from China, has contributed to downward mobility among working-class
Americans. In 2016, a team of economists published a groundbreaking study
that found that the direct and indirect effects of Chinese imports had
cost more than a million Americans their jobs since 2001 and
dramatically reduced their lifetime income.

Meanwhile, the resentment created by the global trading system has
helped fuel the resurgence of reactionary political movements in the
U.S. and Europe, contradicting the notion that free trade promotes
international stability. Adding to the intellectual wreckage,
predictions that free trade would nudge China toward liberalizing have
become an embarrassing reminder of just how naive the architects of our
trade policies were.

How can liberals move beyond this past while also making clear that
they have a better alternative to Trump’s incoherent and jingoistic
approach? In many ways, the answer lies with an idea originally proposed
by New Deal types back in the Roosevelt and Truman administrations.
They rejected the use of tariffs simply to protect the interests of
financiers and plutocrats. Yet they also understood, as subsequent
generations would forget, that there is no such thing as truly “free”
trade. All trade depends on rules, and unless markets operate under the
right ones, they will tend toward capitalistic excess, including
dangerous degrees of industry concentration and the exploitation of
workers and the environment. Which is why the architects of the postwar
system got fifty-three nations to sign off on a treaty known as the Havana Charter,
which included rules that guaranteed workers’ rights, provided
protections against destructive foreign investor behavior, and required
trading nations to abide by anti-monopoly rules.

Alas, this part of their vision was never realized. But today it
provides a blueprint for how we can build a fair and sustainable trading
system in the twenty-first century.

Getting
our heads straight on trade first requires sweeping away a good deal of
unfortunate conventional wisdom. As an undergraduate at Stanford in the
late 1980s, I learned—like most everyone who takes introductory
economics—that tariffs are bad. Any policy that restrained foreign
competition was a form of “protectionism” that coddled inefficient
domestic industries and raised consumer prices. Free trade might lead to
some job losses, but, by letting every country specialize in what it
did best, the world would grow ever more prosperous.

Convinced that opening up global trade contributed to the public
good, I gladly worked for a private law firm pushing the implementation
of NAFTA and the WTO. In 2003, I was honored and thrilled to join the
team of lawyers at the Office of the United States Trade Representative,
an agency within the White House that leads trade negotiations. It was a
busy time: the Bush administration was negotiating a raft of bilateral
and regional trade agreements, along with efforts to strike a new deal
at the WTO.

This was when I began to realize that the real world of trade policy
was nothing like what I’d learned in school. What I saw was not a
brotherhood of men seeking to create open and efficient markets to
allocate resources to their highest valued use. Instead, I saw a system
beset by a tangle of special interests, heavily oriented toward
maximizing returns to capital at the expense of workers and the
environment.

One of the few things Trump gets right is that the United States
continually gets taken advantage of by its trading partners. In the
U.S., we at least require our decisionmaking to be public and based on
an evidentiary record. But many of our trading partners make decisions
in black boxes, discriminating against our exports in ways that are
impossible to challenge because we simply can’t get our hands on the
facts. Meanwhile, WTO bureaucrats have blocked the U.S. from using a
certain methodology to calculate tariffs to address unfair trade. The
result is that we can’t fully protect our domestic industries when other
nations cheat.

The dynamic never changes. In the 1970s, we complained that Germany
needed to export less and spend more at home. Today, we complain that
Germany needs to export less and spend more at home. In the 1970s, we
complained that Japan needed to export less and import more. Today, we
complain that Japan needs to export less and import more. In the
interim, we designed an entirely new trading system, the WTO, and yet we
have precisely the same grievances.

That’s to say nothing about China, which puts our traditional trading
partners to shame when it comes to working the system. China’s theft of
intellectual property draws the most attention because the Trump
administration has used it to justify
tariffs on Chinese imports. But the more serious threat is Chinese
industrial policy, which is not only state run but is also designed to
subsidize exports as a means of gaining an edge against foreign
competition. After the financial crisis, China pumped several hundred
billion dollars of subsidies into its steel, aluminum, and solar panel
industries. In the short term, that meant lower prices for buyers of
steel and aluminum products in the U.S. and elsewhere. But by propping
up its unprofitable companies, China forced factories elsewhere around
the world into bankruptcy, reducing global competition and concentrating
production within its borders. Now China is expanding its loss-leading
strategy to other industries in which Americans still have some edge,
like aerospace, pharmaceuticals, and information technology.

Nor would the TPP, which Obama sold as a way to contain China’s
fast-growing influence, have helped. Trade negotiators accepted complex
supply chain rules
in the agreement that would have actually benefited Chinese car part
producers, by increasing the percentage of a “TPP-made” car that could
be imported from China. In other words, China would have been a de facto
beneficiary to an agreement designed to exclude it.

The incoherence of our trade policies isn’t just a product of
ignorance. Far from it. Instead, it often derives from the outsize
political power exercised by American corporations, including the
concentrated pharmaceutical and agribusiness industries. American
agricultural conglomerates make sure the rules essentially require U.S.
farmers to buy their seeds. Many corporations have built their business
models around offshoring production, so they can source cheaper
components without passing those savings on to consumers. That’s why
many of America’s biggest trading corporations actually support rules
that let countries like China free-ride, whether it’s NAFTA, the new
NAFTA, or the TPP. Big American drug companies want the U.S. to put a
priority on convincing other nations to secure and extend patent
monopolies.

The name for this regime is “free trade.” The derogatory term for
those who raise questions about it is “protectionist.” Somehow, some
people imagine that staying on this path will one day lead to an actual
open and efficient market.

So
where does this leave people looking to break from both the obvious
failures of mainstream U.S. trade policy and from Trump’s xenophobic
America First-ism? To answer that question, we have to get the story
straight about what the original liberal, Democratic vision for
international trade was, and how it was compromised.

That story starts after World War I. Democratic President Woodrow
Wilson’s “Fourteen Points” included a demand for “the removal, so far as
possible, of all economic barriers and the establishment of an equality
of trade conditions among all the nations consenting to the peace and
associating themselves for its maintenance.” But the Senate rejected
Wilson’s global vision, and Congress continued to favor tariffs. After
World War II, many liberals, both here and abroad, vowed not to repeat
the previous generation’s mistakes. This did not mean embracing
laissez-faire. Indeed, many liberals in this era drew a direct line from
the excessive power of unregulated monopoly capitalism in the 1920s and
’30s to the rise of fascism. Nor did postwar liberals have any
illusions about unrestrained capitalism benefiting workers. But they
understood that properly structured trade could be a great force for
building peace and prosperity. So they sought a new global trading order
that would slash tariffs and encourage the growth of international
trade on the one hand, while minimizing the political influence of
corporations and protecting the rights of workers on the other. To
postwar liberals, free trade thus meant a world in which strong
international institutions would set fair market rules, including fair
labor standards, disciplines on foreign investors, and anti-monopoly
provisions.

The mechanism for achieving these ends was supposed to be the Havana
Charter. Drawing on an idea originally floated by FDR’s favorite
economist, John Maynard Keynes, it called for the creation of a body to
be known as the International Trade Organization, and charged it with
enforcing rules that would protect the rights of labor and put
constraints on other abuses by financiers and corporations. By March
1948, fifty-three countries, including the U.S., had signed on.

But although Harry Truman signed the charter, his repeated efforts to
persuade Congress to ratify it fell short, and his administration at
last had to give up in 1950. Business interests opposed the charter,
claiming that its constraints on capitalism were inconsistent with the
American free enterprise system—even though fair labor standards and
antitrust rules were fully embedded in the American free enterprise
system of the era.

At the same time, leaders in both parties had come to fear that
war-torn nations in Europe and Asia could fall into the orbit of Soviet
communism or resurgent fascism if the United States didn’t help them
recover. American corporations knew they wouldn’t get to sell foreign
countries the supplies they needed to rebuild unless these countries
were given the means to pay. Postwar planners, therefore, used foreign
aid policies like the Marshall Plan to promote an even more extreme form
of industrial interdependence than the Havana Charter had imagined.
There was also strong bipartisan support for making major asymmetrical
trade concessions while foreign countries recovered from the devastation
of the war.

For roughly two decades, these policies generally worked. Soviet
expansion was contained, and countries like Japan and Germany were set
on the road to becoming prosperous, peaceful, and democratic, fully
integrated industrially with the U.S. and other key allies. Meanwhile,
we didn’t yet feel the absence of fair labor and anti-monopoly
standards. But by the 1970s, it had become much clearer that these
arrangements were beginning to harm American workers and businesses
unnecessarily. In the early ’70s, Richard Nixon grew frustrated that
increasingly prosperous European and Japanese trading partners continued
to throw up obstacles to U.S. imports. So his administration, and
Gerald Ford’s after it, sought to get better behavior out of our trading
partners by expanding the U.S. commitment to a mechanism known as the
General Agreement on Tariffs and Trade, which was supposed to tie
everyone to a more rule-bound trade regime. But in 1979, President
Carter, presented with a new GATT deal, concluded that it was better to
accept a deal without fair labor standards than to have no deal at all.

If the 1970s presented one missed opportunity to achieve a truly
liberal trade policy, the 1990s presented a second. With the collapse of
the Soviet Union, the U.S. might have decided that it no longer had any
geopolitical need for trade concessions that threatened the well-being
of its workers and communities and the resiliency of its industrial
base. Instead, many Democrats embraced NAFTA and the creation of the
WTO. The Clinton administration also pressed to loosen trade
restrictions on autocratic China, which in hindsight was a mistake.
Under these policies, more and more American manufacturing moved
offshore, and foreign producers gained still more asymmetrical access to
our markets—all without agreeing to abide by basic labor and
environmental protections. Where the U.S. did use its chips, it was in
the service of corporate profits: expanding patent protections for U.S.
drug companies and giving the investor class the unique ability to sue
governments, ultimately extending to challenges to regulations that
impinge on investors’ profits.

These decisions represented a further departure from the liberal
principles set out by the Havana Charter. Whereas the architects of that
agreement believed in constraints on capital, through fair labor
standards, anti-monopoly rules, and disciplines on foreign investor
interference with domestic policies, mainstream Democrats in the 1990s
didn’t even contemplate that these rules might be necessary. At this
point, the influence of libertarianism was near its zenith among
academic economists. Their former students, including many self-styled
liberals, were going out into the world while suffering from the same
cognitive capture that had happened to me at Stanford.

Today’s
liberals—and anyone else trying to determine the right position on
trade—can learn from the mistakes and missed opportunities of the past.
To start with, we need to return to and update the trade principles in
the Havana Charter. Those principles include engineering fair,
competitive markets designed to limit corporate power. This is a
particular problem in the context of increasing corporate concentration.
As giant corporations have gained economic power they have also gained
political power, which has been used to undermine health, labor,
environmental, and other regulation. Blowing up the outsize influence of
corporations, including the power of nominally American corporations
that take advantage of lax Chinese health, labor, and environmental
standards through offshoring, is a precondition for doing anything
serious about inequality or climate change.

We also cannot continue to justify our trade policies on the basis of
consumerism. Not only are benefits to consumers assumed, rather than
proven, we also must consider the rights of working-class Americans to a
fair shot at the American Dream, and on the ability of small and
midsize American firms to stay in business without needing to bust
unions, cut benefits, or offshore their operations. In some instances,
achieving these goals will require the U.S. to cut trade with certain
nations, or at least retain the ability to credibly threaten to do so.

That means we will need to be ambitious in reconceiving the way the
international trading system works. It needs to have strong labor and
environmental standards. It needs to prevent bureaucrats in Geneva from
making up rules. And it needs to address the fact that Chinese state
capitalism, which is monopolistic in nature, is fundamentally
incompatible with the free enterprise system the original architects
created. The concentration of vital industrial capacities in a few
nations—or only one—is dangerous for the global system.

Trump’s abrasive attack on the WTO has shaken things up. Therein lies
the opportunity. Liberals care about systemic problems like income
inequality and the destruction of the environment. As we look ahead to
2020 and contemplate bold policy ideas like the Green New Deal, it
should be natural for us to expect the global trading system to be part
of the solution, not part of the problem. We have the chance to make the
system fit our purposes in the modern era. Let’s do it.